Investors face pain and gain
Global investment managers, in the country for a BNZ roadshow, found themselves fielding questions on the sharemarket shakeup.
Tuesday, April 18th 2000, 12:00AM
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"I think it's difficult to overstate the amount of pain that's been felt with this sharemarket correction, particularly in dot.com land..... I think that Greenspan could have had his work done for him."
The speaker: Jeffrey Everett, Executive Vice President Portfolio Management/Research for Templeton Global Advisers. Usually to be found in the Bahamas or Hong Kong, Everett is here this week on a BNZ roadshow fielding questions perhaps more topical than usual.
As Templeton are self-described value investors, markets haven't been kind to them in recent years so Everett was happy to say that "TMT is where the fluff (in the market) has been".
"This is just a simple valuation adjustment; very healthy for the markets long term."
Also on the roadshow was Ben Alexander, Australian-based Vice President of Fixed Income Research for Credit Suisse Asset Management, who put this spin on events:
"The fixed interest markets are somewhat perverse. When I come home at night and my wife asks if I've had a good day, well, economic growth is looking slow, unemployment is high, the sharemarket crashed; so yes I had a great day!
"If the sharemarket does crash, one thing you can take comfort in is that your fixed interest returns will be OK."
The two men were speaking in Wellington yesterday as part of a three city roadshow, the first time the BNZ's two international fund managers have been brought out together. BNZ appointed Credit Suisse to manage its international bond trust in 1994 and Templeton to manage its international equity trust the same year.
Everett conceded that the past five years hadn't been an easy environment for value investors such as Templeton, who have over $224 billion under management worldwide.
"A lot of our competitors have morphed into quasi-growth managers, but we've stuck with our stripes. We're simply trying to get the best companies at the best prices on to our research lists, and subsequently into our portfolios."
Everett noted that $US4.9 trillion in market value was added to stocks worldwide in 1999, but just four stocks had been responsible for 30 per cent of that: Microsoft, Cisco, GE and Nokia. He said that, in March ten companies in the USA were worth more than all the companies in Asia ex Japan.
However, there was a danger in extrapolating large numbers (as the hammering of tech stocks has shown).
"Someone last week was telling me that in 1973 there were 48 registered Elvis impersonators and by 1993 there were around 4,000. Take that out another 20 years and one in four people on the planet will be an Elvis impersonator!"
Avoiding rock stars then, one of the key geographical areas Templeton has an eye to is China. Everett said that Chinese regulators were working to introduce QFII status (as already in India and Taiwan) and hence open up more opportunities for foreign investors. The trust currently has nearly 24 per cent of its investments in the Asian region.
Ben Alexander of Credit Suisse is also looking to Asia, but in his case it's with concern about what happens in the Japanese market. He said that there were a lot of ten year savings coming up for renewal and, as interest rates were very low (the cash rate is currently close to zero) it was not clear whether that money would be rolled over.
Alexander said that the bond trust had suffered in performance because it had been underweight in Japan, but a return of 7.5 per cent (gross) for the coming year should be achievable. The trust is 100 per cent currency hedged back to the New Zealand dollar.
Changes currently being made to the bond portfolio include increasing the overall duration of US bonds, in anticipation of further falls in long-term rates, adding to long-term Canadian bonds and taking a currency position based on the Euro firming.
"There's actually a private war going on in the US, between the US Federal Reserve who quite rightly observe that the US economy is white-hot....and are keeping short-term rates up, and politicians who are looking at big surpluses and want to keep economic strength..(and who can control long-term rates). We expect the yield curve to be further inverted."
"In the past, a yield curve inversion has been an indicator that a recession on the way. Clearly that's not really the environment at the moment, although some people are raising the question."